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  • What To Buy In The Agricultural Sector? 0 comments
    Jul 10, 2014 1:19 PM | about stocks: DE, MPC, VLO, BA, AGCO, AGU, CNHI, PM, SYT, CMI, COP, LMT, KO, KMI, NLY

    I am documenting my journey to financial independence by posting when I make a trade. Since I am fairly new to investing, my base of knowledge continues to grow and my strategy is evolving. My goal is to gain financial independence by age 50 (currently 27).

    I have a list of 60-70 stocks that I follow, mostly all decent-sized blue-chip stocks. My hope is that by only following high-quality companies with solid histories, I can make my decision to invest based on technical indicators. In the last two days, I decided to initiate positions in Lockheed Martin (NYSE:LMT) and Marathon Petroleum (NYSE:MPC) based on this strategy.

    Yesterday I ended my article with a list of equities that are on my watch-list due to several factors. One company that caught my eye is Deere & Co (NYSE:DE). Deere has been on my wish list for over half a year, as it is one of the largest players in an industry that I'm itching to get in to. Upon researching Deere, I found that the agricultural sector as a whole is getting beaten up this week, and I decided to look into several stocks in this segment: Deere & Co, Allis-Gleaner Corporation (NYSE:AGCO), Agrium (NYSE:AGU), CNH Industrial (NYSE:CNHI), and Syngenta (NYSE:SYT).

    As stated previously, all these companies have been hammered recently. With world population increasing, and food demand constantly increasing, it seems plausible to me that investing in companies that participate in this market are a solid bet for long-term investment.

    Here's what I looked at for each of these companies prior to pulling the trigger:

    Deere & Co: $32.44B MC, 36.27 RSI, 9.046 EV/EBITDA, 2.7% yield, 9.8 PE

    AGCO: $5.06B MC, 35.71 RSI, 5.731 EV/EBITDA, .82% yield, 9.2 PE

    AGU: $12.89B MC, 34.56 RSI, 8.368 EV/EBITDA, 3.4% yield, 14.3 PE

    CNHI: 12.93 EV/EBITDA (did not research the other metrics as this equity is clearly overpriced compared to the others)

    SYT: $34.79B MC, 38.45 RSI, 8.42 EV/EBITDA, No yield, 21 PE

    I place a much higher premium on EV/EBITDA than P/E ratio because I feel it is a much more accurate picture of the company's value. This is because companies with very low P/Es could have a ton of debt, so it is not a great tool to show the total picture. As you can see from my comments above, CNHI is clearly overvalued by the EV/EBITDA metric, and so I did not put in the time to research it further.

    AGCO is clearly the best-valued equity on this list per the EV/EBITDA metric; although the others besides CNHI appear decently-valued. AGU is the best-yielding company on this list and is slightly lower in EV/EBITDA than Deere & Co, and AGCO is the lowest yielder of the group, other than SYT (no yield).

    If I were approaching retirement, it would be a tough choice between AGU and Deere & Co: per the metrics AGU appears to be a better bet as it has lower EV/EBITDA and is closer to approaching oversold territory providing a more optimal entry point, but Deere & Co's brand name and excellent management would be enticing. However, since I am young and am much more geared toward total return, I have decided to initiate a position in AGCO.

    I bought 11 shares of AGCO @ 53.44 for a total investment of 587.84.

    New portfolio make-up:

    Total: $11,744

    Cash: 1782 (15%)

    AGCO: 11 @ 53.44 = 588 (5%)

    COP: 13 @ 85.35 = 1109 (9.4%)

    KMI: 116 @ 35.63 = 4133 (35.2%)

    KO: 32 @ 42.18 = 1350 (11.5%)

    LMT: 4 @ 158.62 = 634 (5.4%)

    MPC: 7 @ 77.43 = 542 (4.6%)

    NLY: 143 @ 11.17 = 1597 (13.6%)

    Make-up by sector:

    Energy: 5784 (49%)

    mREIT: 1597 (14%)

    Food and Beverage: 1350 (11%)

    Defense: 634 (5%)

    Agriculture: 588 (5%)

    Over time, I want to diversify by sector much more. My two main short-term goals are to reduce my KMI holding to 15% or less and reduce my cash position to 10% or less. I am fast-approaching my cash position goal by initiating new positions the last couple days. Reducing my exposure to energy is a more long-term goal as reducing my holdings by 30% won't happen overnight. Unless there is a big run-up with these holdings in the next 3-4 months, the issue will somewhat fix itself when I make my 2015 contribution in January.

    Equity watch-list:

    Deere & Co, Boeing (NYSE:BA), Valero Energy (NYSE:VLO) AGU, Phillip Morris International (NYSE:PM), Cummins (NYSE:CMI)

    Highest Profits,


    Disclosure: The author is long AGCO, COP, KMI, KO, LMT, MPC, NLY.

    Additional disclosure: I am writing this as a personal journal to document my thought process when making trades. Nothing mentioned in this article is meant as professional advice to buy or sell any securities. Individuals should always do their own due diligence and also may want to consult professional advice when considering any investment.

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